Ryanair lifts profit forecast as better service pays off

Conor Humphries

5 Min Read

DUBLIN (Reuters) - Ryanair (RYA.I) raised its annual profit forecast almost 20 percent on Monday thanks to a surge in winter bookings as the budget airline pioneer said improvements to its much criticized customer service were paying off.

The Irish airline built its business on the back of low fares combined with austere service but shifted strategy when it became apparent that its growth had stalled as customers were tiring of its charmless approach.

Since a pledge last year by outspoken Chief Executive Michael O’Leary to stop “unnecessarily pissing people off,” Ryanair has slashed penalty charges, overhauled its web site, tripled its marketing budget and launched business class fares.

That has helped the airline to boost ticket fares by 5 percent in the six months to September and is set to help it sell 2 million more seats than originally planned in the six months to March, O’Leary said.

“As the word gets out that Ryanair is changing, that it’s not cheap and nasty ... that gives us a lot of positive momentum,” O’Leary told a conference call with investors.

“If I had known being nice to customers would work so well I would have started many years ago,” joked O’Leary, who is rationing his media appearances after being closely identified with the airline’s spartan style.

The improved focus on service by Ryanair and budget rival easyJet (EZJ.L) has increased the pressure on higher cost European airlines Lufthansa (LHAG.DE) and Air France-KLM (AIRF.PA).

PROFIT SURGE

Ryanair, Europe’s largest airline by passenger numbers, forecast its profit after tax would be between 750 million euros and 770 million euros in the year to March 2015.

That was up from a previous forecast of 620 million to 650 million euros and well ahead of an average forecast of 694 million euros ($867 million) in a company poll of analysts.

By contrast, Lufthansa and Air France-KLM have both lowered their profit forecasts in recent days, hit by the combined effects of increased competition and the cost of industrial action.

“The market was looking for a revision, but this is pushing it to the upper end of expectations,” said Mark Simpson, an analyst with Irish brokerage Goodbody.

“They are using the strength of the first half to really grab market share in the second half.”

LOWER PRICES

In addition to improved service, Ryanair plans to use its sheer scale to gain market share during the traditionally weak winter season.

The airline bumped up its forecast for winter passenger growth by 2.2 million, to increase its full-year passenger numbers to 89 million, up 8.5 percent on last year.

It will cut fares by up to 5 percent in the last three months of the year and by up to 10 percent in the three months to March to build momentum on new routes. A new business class fare unveiled over the summer, which gives passengers a number of perks for an extra 50 euros, should help boost winter demand and make the business less dependent on summer holidaymakers, O’Leary said.

Fleet expansion is focused on high frequency flights to primary airports used by business travelers rather than the cheaper regional airports that dominated Ryanair’s network in the past.

Profit after tax for the six months to September, the first half of Ryanair’s financial year, was up 32 percent to 795 million euros, just below an average forecast of 799 million euros in a company poll.

A significant factor in the improvement was a change of policy to sell more tickets earlier, a policy which has reduced the number of empty seats on planes and increased last minute fares, O’Leary said.

The airline said it had attempted to lock in recent falls in the price of oil, hedging 90 percent of its fuel needs for the year to March 2016 at around $93 per barrel and would try to extend that further in the coming months.